UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

 

FORM 10-Q

 

 

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2020.

 

OR

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from________ to_________.

 

Commission File Number: 001-38298

 

 

 

Zomedica Pharmaceuticals Corp.

(Exact name of registrant as specified in its charter)

 

 

 

Alberta, Canada   N/A
(State or other jurisdiction of
incorporation or organization)
 

(I.R.S. Employer

Identification Number)

 

100 Phoenix Drive, Suite 180

Ann Arbor, Michigan

  48108
(Address of principal executive offices)   (Zip code)

 

(734) 369-2555

(Registrant’s telephone number, including area code)

 

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [  ]

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [   ]   Accelerated filer [   ]
         
Non-accelerated filer [X]   Smaller reporting company

[X]

 

      Emerging growth company [X]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [X]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Shares, without par value ZOM NYSE American

 

As of August 10, 2020, 564,051,438 shares of the registrant’s common shares, without par value, were issued and outstanding.

 

 

 

Zomedica Pharmaceuticals Corporation

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED

JUNE 30, 2020

 

TABLE OF CONTENTS

 

  Page
PART I
 
FINANCIAL INFORMATION
   
1. Condensed Financial Statements 1
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 28
3. Quantitative and Qualitative Disclosures About Market Risk 38
4. Controls and Procedures 38
PART II  
   
OTHER INFORMATION  
   
1. Legal Proceedings 38
1A. Risk Factors 39
6. Exhibits 40

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

 

 

 

 

Zomedica Pharmaceuticals Corp.

 

 

Condensed unaudited interim consolidated financial statements

 

For the three and six months ended June 30, 2020 and 2019

 

(Expressed in United States Dollars, except as otherwise noted)

 

 

 

 

 

 

 

 

 

 

 

Zomedica Pharmaceuticals Corp.

Condensed unaudited interim consolidated balance sheets

As at June 30, 2020 and December 31, 2019

(Stated in United States dollars)

 

              June 30,       December 31,  
      Note       2020       2019  
                         
Assets                        
                         
Current assets:                        
Cash and cash equivalents           $ 29,103,049     $ 510,586  
Prepaid expenses and deposits     5       782,647       1,228,585  
Tax credits and other receivables             182,496       67,618  
              30,068,192       1,806,789  
                         
Property and equipment     6       798,901       729,142  
Right-of-use asset     8       1,441,124       1,103,658  
Intangible assets     7       453,370       543,395  
            $ 32,761,587     $ 4,182,984  
                         
Liabilities and shareholders' equity                        
                         
Current liabilities:                        
Accounts payable and accrued liabilities           $ 1,731,469     $ 2,087,525  
Current portion of lease obligations     8       232,496       -  
              1,963,965       2,087,525  
                         
Lease obligations     8       1,218,661       -  
              3,182,626       2,087,525  
                         
Shareholders' equity:                        
Capital stock                        
Series 1 preferred shares, without par value;                        
20 shares authorized (2019 - 20)                        
Issued and outstanding                        
12 series 1 preferred shares (2019 - 12)     10       11,961,397       11,961,397  
Unlimited common shares without par value;                        
Issued and outstanding                        
361,039,946 common shares (2019 - 108,038,398)     11       67,328,922       38,566,820  
Shares to be issued     12       1,465,500       -  
Additional paid-in capital     13,14       8,639,590       3,625,083  
Accumulated deficit             (59,816,448 )     (52,057,841 )
              29,578,961       2,095,459  
                         
            $ 32,761,587     $ 4,182,984  

Commitments and contingencies (Note 15)

 

The accompanying notes are an integral part of these condensed unaudited interim consolidated financial statements.

 

 

  2  

 

Zomedica Pharmaceuticals Corp.

Condensed unaudited interim consolidated statements of operations and comprehensive loss

For the three and six months ended June 30, 2020 and 2019

(Stated in United States dollars)

 

              Three months ended June 30,       Six months ended June 30,  
      Note       2020       2019       2020       2019  
                                         
Expenses:                                        
Research and development     18     $ 3,908,171     $ 1,061,507     $ 4,503,570     $ 8,592,882  
General and administrative     18       988,734       901,319       2,272,261       4,113,677  
Professional fees     18       282,791       231,647       573,472       989,946  
Amortization - right-of-use asset     8       -       127,345       42,448       254,690  
Amortization - intangible assets     7       44,990       270       90,025       537  
Depreciation     6       77,859       68,925       154,275       130,979  
Loss from operations             5,302,545       2,391,013       7,636,051       14,082,711  
Interest income             (247 )     -       (328 )     -  
Interest expense             -       12,164       732       18,338  
Loss on disposal of property and equipment     6       -       1,308       69,834       1,308  
Loss on right-of-use-asset     8       -       -       59,097       -  
Gain on settlement of liabilities             -       -       -       (19,737 )
Other income             -       -       (5,500 )     -  
Foreign exchange loss (gain)             5,692       (58 )     (1,279 )     (1,283 )
Loss before income taxes             5,307,990       2,404,427       7,758,607       14,081,337  
Income tax expense             -       -       -       -  
Net loss and comprehensive loss           $ 5,307,990     $ 2,404,427     $ 7,758,607     $ 14,081,337  
                                         
Weighted average number of common shares - basic and diluted             214,830,818       108,038,398       166,814,645       104,528,705  
                                         
Loss per share - basic and diluted           $ (0.02 )   $ (0.02 )   $ (0.05 )   $ (0.13 )

 

The accompanying notes are an integral part of these condensed unaudited interim consolidated financial statements.

 

 

 

 

 

 

 

  3  

 

Zomedica Pharmaceuticals Corp.

Condensed unaudited interim consolidated statements of shareholders’ equity

For the three and six months ended June 30, 2020 and 2019

(Stated in United States dollars)

 

        Series 1 preferred stock     Common stock                                
    Note   Shares     Amount     Shares     Amount     Common
stock
subscribed
    Shares to be
issued
    Additional
paid-in
capital
    Accumulated
deficit
    Total  
                                                           
Balance at December 31, 2018         -     $ -       97,598,898     $ 30,410,648     $ 4,280,000     $ -     $ 1,240,139     $ (32,273,787 )   $ 3,657,000  
Stock issuance for services   11     -       -       707,236       792,104       -       -       -       -       792,104  
Stock-based compensation   13     -       -       -       -       -       -       2,341,104       -       2,341,104  
Stock issuance for financing, net of cost   10,11     12       11,962,811       9,337,529       6,690,922       (4,280,000 )     -       -       -       14,373,733  
Stock issued due to exercise of options   11,13     -       -       394,735       754,148       -       -       (154,148 )     -       600,000  
Net loss         -       -       -       -       -       -       -       (14,081,337 )     (14,081,337 )
Balance at June 30, 2019         12     $ 11,962,811       108,038,398     $ 38,647,822     $ -             $ 3,427,095     $ (46,355,124 )   $ 7,682,604  
                                                                             
Balance at December 31, 2019         12     $ 11,961,397       108,038,398     $ 38,566,820     $ -     $ -     $ 3,625,083     $ (52,057,841 )   $ 2,095,459  
Stock, warrants and pre-funded warrants issuance for financing   11     -       -       175,330,001       15,984,325       -       1,465,500       10,514,458       -       27,964,283  
Stock issuance costs   11     -       -       -       (1,755,376 )     -       -       (1,084,024 )     -       (2,839,400 )
Placement agent warrants   11     -       -       -       (154,767 )     -       -       154,767       -       -  
Stock-based compensation   13     -       -       -       -       -       -       290,866       -       290,866  
Stock issued due to exercise of warrants and pre-funded warrants   11     -       -       77,671,547       14,687,920       -       -       (4,861,560 )     -       9,826,360  
Net loss         -       -       -       -       -       -       -       (7,758,607 )     (7,758,607 )
Balance at June 30, 2020         12     $ 11,961,397       361,039,946     $ 67,328,922     $ -     $ 1,465,500     $ 8,639,590     $ (59,816,448 )   $ 29,578,961  

 

 

 

 

The accompanying notes are an integral part of these condensed unaudited interim consolidated financial statements.

 

 

 

 

 

  4  

 

Zomedica Pharmaceuticals Corp.

Condensed unaudited interim consolidated statements of cash flows

For the three and six months ended June 30, 2020 and 2019

(Stated in United States dollars)

 

              Three months ended June 30,       Six months ended June 30,  
      Note       2020       2019       2020       2019  
                                         
Cash flows used in operating activities:                                        
Net loss for the period           $ (5,307,990 )   $ (2,404,427 )   $ (7,758,607 )   $ (14,081,337 )
Adjustments for                                        
Depreciation     6       77,859       68,925       154,275       130,979  
Amortization - intangible assets     7       44,990       270       90,025       537  
Amortization - right-of-use-asset     8       -       127,345       42,448       254,690  
Loss on disposal of property and equipment     6       -       1,308       69,834       1,308  
Loss on right-of-use asset     8       -       -       59,097       -  
Non-cash portion of rent expense     8       6,019       -       10,032       -  
Stock issued for services     11       -       -       -       792,104  
Stock-based compensation     13       135,844       -       290,866       2,341,104  
Change in non-cash operating working capital                                        
Tax credits and other receivables             (40,032 )     (17,578 )     (114,878 )     (41,891 )
Prepaid expenses             56,284       92,418       67,908       263,010  
Deposits             (318,643 )     (327,138 )     78,762       (98,075 )
Accounts payable and accrued liabilities             (374,859 )     (5,977,134 )     (883,414 )     (579,716 )
              (5,720,528 )     (8,436,011 )     (7,893,652 )     (11,017,287 )
                                         
Cash flows from financing activities:                                        
Proceeds from financing of preferred shares     10       -       12,000,000       -       12,000,000  
Proceeds from issuance of common shares, warrants and pre-funded warrants     11,14       23,998,783       -       26,498,783       3,000,000  
Cash received from warrant exercises     13       9,826,359       -       9,826,359       600,000  
Cash received from shares to be issued     12       1,465,500       -       1,465,500       -  
Cash paid on stock issuance costs     11,14       (2,491,177 )     (33,095 )     (2,839,400 )     (626,267 )
Cash received for government loan     9       527,360       -       527,360       -  
              33,326,825       11,966,905       35,478,602       14,973,733  
                                         
Cash flows (used in) from investing activities:                                        
Cash from sale of property and equipment     6       -       -       5,400       -  
Investment in property and equipment     6       -       -       -       -  
Cash from lease repurchase     8       -       (5,477 )     1,002,113       (74,563 )
              -       (5,477 )     1,007,513       (74,563 )
                                         
Increase in cash and cash equivalents             27,606,297       3,525,417       28,592,463       3,881,883  
                                         
Cash and cash equivalents, beginning of period             1,496,752       2,296,731       510,586       1,940,265  
                                         
Cash and cash equivalents, end of period           $ 29,103,049     $ 5,822,148     $ 29,103,049     $ 5,822,148  
                                         
Supplemental cash flow information:                                        
                                         
Interest paid           $ -     $ 12,164     $ 651     $ 18,338  

 

The accompanying notes are an integral part of these condensed unaudited interim consolidated financial statements.

 

 

  5  

Zomedica Pharmaceuticals Corp.

Notes to the condensed unaudited interim consolidated financial statements

For the three and six months ended June 30, 2020 and 2019

(Stated in United States dollars)

1. Nature of operations and going concern

 

Zomedica Pharmaceuticals Corp. ("Zomedica" or the “Company”) was incorporated on January 7, 2013 under the Business Corporations Act (Alberta) as Wise Oakwood Ventures Inc. (“WOW”) and was classified as a capital pool company, as defined in Policy 2.4 of the TSX Venture Exchange. ZoMedica Pharmaceuticals Inc. was incorporated on May 14, 2015 under the Canada Business Corporations Act.

 

On April 21, 2016, the Company closed its qualifying transaction (“Transaction”), consisting of the acquisition of ZoMedica Pharmaceuticals Inc. (“ZoMedica”) pursuant to a three-cornered amalgamation, whereby ZoMedica was amalgamated with 9674128 Canada Inc. (which was wholly-owned by WOW) and common shares and options of the Company were issued to former holders of ZoMedica securities as consideration. The amalgamated company changed its name to Zomedica Pharmaceuticals Ltd. and WOW subsequently changed its name to Zomedica Pharmaceuticals Corp. Prior to completion of the Transaction, WOW consolidated its common shares on the basis of the one post-consolidation common share for every 2.5 pre-consolidation common shares. The Transaction constituted WOW’s qualifying transaction under TSX Venture Exchange Policy 2.4 – Capital Pool Companies. The shares of Zomedica Pharmaceuticals Corp. began trading on the TSX Venture Exchange under the new symbol “ZOM” on Monday, May 2, 2016. On June 21, 2016, the Company filed Articles of Amalgamation and vertically amalgamated with its wholly-owned subsidiary, Zomedica Pharmaceuticals Ltd. On February 10, 2020 the Company voluntarily delisted from the TSX-V.

 

Zomedica has one corporate subsidiary, Zomedica Pharmaceuticals, Inc., a Delaware company whose results and operations are included in these consolidated financial statements. We are a development stage veterinary health company focused on creating point-of-care diagnostic platforms for use by veterinarians treating companion animals by focusing on the unmet needs of clinical veterinarians. Zomedica's head office is located at 100 Phoenix Drive, Suite 180, Ann Arbor, MI 48108 and its registered office is located at 3400, 350-7th Ave SW, Calgary, AB, T2P 3N9.

 

2. Basis of preparation

 

The accounting policies set out below have been applied consistently in the condensed unaudited interim consolidated financial statements. The condensed unaudited interim consolidated financial statements do not include all of the information required for annual consolidated financial statements and should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2019. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for fair presentation have been included. Operating results for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.

 

 

  6  

Zomedica Pharmaceuticals Corp.

Notes to the condensed unaudited interim consolidated financial statements

For the three and six months ended June 30, 2020 and 2019

(Stated in United States dollars)
2. Basis of preparation (continued)

 

These condensed unaudited interim consolidated financial statements were prepared using the same basis of presentation, accounting policies and methods of computation as those of the audited consolidated financial statements for the year ended December 31, 2019.

 

Basis of consolidation

 

These condensed unaudited interim consolidated financial statements include the accounts of the Company and its wholly owned operating subsidiary, Zomedica Pharmaceuticals, Inc.

 

All inter-company accounts and transactions have been eliminated on consolidation.

 

3. Significant accounting policies

 

Use of estimates

 

The preparation of the condensed unaudited interim consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed unaudited interim consolidated financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates.

 

Areas where significant judgment is involved in making estimates are, the determination of fair value of stock-based compensation, the useful lives of property and equipment, allocation of proceeds from financings to shares and warrants, fair value of placement agent warrants and forecasting future cash flows for assessing the going concern assumption.

 

Basis of measurement

 

The condensed unaudited interim consolidated financial statements have been prepared on the historical cost basis except as otherwise noted.

 

Functional and reporting currencies

 

The Company’s and subsidiary’s functional currency, as determined by management, is US dollars, which is also the Company’s reporting currency.

 

The accounting policies set out below have been applied consistently to all periods and companies presented in the condensed unaudited interim consolidated financial statements.

 

Research and development

 

Research and development costs related to continued research and development programs are expensed as incurred in accordance with ASC topic 730.

 

Share issue costs

 

Share issue costs are recorded as a reduction of the proceeds from the issuance of capital stock.

 

  7  

Zomedica Pharmaceuticals Corp.

Notes to the condensed unaudited interim consolidated financial statements

For the three and six months ended June 30, 2020 and 2019

(Stated in United States dollars)
3. Significant accounting policies (continued)

 

Translation of foreign currencies

 

In respect of other transactions denominated in currencies other than the Company and its wholly owned operating subsidiaries’ functional currencies, the monetary assets and liabilities are remeasured at the period end rates. Revenue and expenses are measured at rates of exchange prevailing on the transaction dates. All of the exchange gains or losses resulting from these other transactions are recognized in the condensed unaudited interim consolidated statements of operations and comprehensive loss.

 

Stock-based compensation

 

The Company measures the cost of equity-settled transactions by reference to the fair value of the equity instruments at the date at which they are granted if the fair value of the goods or services received by the Company cannot be reliably estimated.

 

The Company calculates stock-based compensation using the fair value method, under which the fair value of the options at the grant date is calculated using the Black-Scholes Option Pricing Model, and subsequently expensed over the vesting period of the option using the graded vesting method. The provisions of the Company's stock-based compensation plans do not require the Company to settle any options by transferring cash or other assets, and therefore the Company classifies the awards as equity. Stock-based compensation expense recognized during the period is based on the value of stock-based payment awards that are ultimately expected to vest.

 

The Company estimates forfeitures at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

 

Loss per share

 

Basic loss per share (“EPS”) is computed by dividing the loss attributable to common shareholders by the weighted average number of common shares outstanding. Diluted EPS reflects the potential dilution that could occur from common shares issuable through the exercise or conversion of stock options, restricted stock awards, warrants and convertible securities. In certain circumstances, the conversion of options is excluded from diluted EPS if the effect of such inclusion would be anti-dilutive.

 

The dilutive effect of stock options is determined using the treasury stock method. Stock options to purchase common shares of the Company during the period were not included in the computation of diluted EPS because the Company has incurred a loss for the three and six months ended June 30, 2020 as the effect would be anti-dilutive.

 

Comprehensive loss

 

The Company follows ASC topic 220. This statement establishes standards for reporting and display of comprehensive (loss) income and its components. Comprehensive loss is net loss plus certain items that are recorded directly to shareholders' equity. The Company has no other comprehensive loss items.

 

  8  

Zomedica Pharmaceuticals Corp.

Notes to the condensed unaudited interim consolidated financial statements

For the three and six months ended June 30, 2020 and 2019

(Stated in United States dollars)
4. Critical accounting judgments and key sources of estimation uncertainty

 

The preparation of financial statements in accordance with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, and revenue and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

 

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and further periods if the review affects both current and future periods.

 

Critical areas of estimation and judgements in applying accounting policies include the following:

 

Going concern

 

These condensed unaudited interim consolidated financial statements have been prepared in accordance with U.S. GAAP on a going concern basis, which assumes the realization of assets and discharge of liabilities in the normal course of business within the foreseeable future. Management uses judgment in determining assumptions for cash flow projections, such as anticipated financing, anticipated sales and future commitments to assess the Company’s ability to continue as a going concern.

 

Stock-based payments

 

The Company estimates the fair value of convertible securities such as options using the Black-Scholes option-pricing model which requires significant estimation around assumptions and inputs such as expected term to maturity, expected volatility and expected dividends.

 

Useful lives of property and equipment

 

The Company reviews the estimated useful lives of property and equipment with definite useful lives at the end of each year and assesses whether the useful lives of certain items should be shortened or extended, due to various factors including technology, competition and revised service offerings. During the three and six months ended June 30, 2020 and 2019, the Company was not required to adjust the useful lives of any assets based on the factors described above. Long-lived assets are reviewed for impairment when events or circumstances indicate that the carrying value of an asset may not be recoverable.

 

The impact of the novel strain of coronavirus (“COVID-19”)

 

Since December 31, 2019, the outbreak of the novel strain of coronavirus, specifically identified as “COVID-19”, has resulted in the World Health Organization declaring this virus a global pandemic in March 2020. Governments around the world have enacted emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing and closure of businesses have caused material disruption to businesses resulting in an economic slowdown. Governments and central banks have responded with significant monetary and fiscal interventions designed to stabilize the financial markets. A critical estimate for the Company is to assess the impact of the pandemic on the recoverability of long-lived assets as well as the availability of future financing in assessing the going concern assumption.

 

 

  9  

Zomedica Pharmaceuticals Corp.

Notes to the condensed unaudited interim consolidated financial statements

For the three and six months ended June 30, 2020 and 2019

(Stated in United States dollars)

5. Prepaid expenses and deposits
      June 30,       December 31,   
      2020       2019  
Deposits (i)   $ 655,203     $ 1,033,231  
Prepaid marketing (ii)     33,505       19,829  
Prepaid insurance (ii)     19,860       110,636  
Other (iii)     74,079       64,889  
Total   $ 782,647     $ 1,228,585  

 

(i) Deposits include payments made to vendors in advance and are primarily associated with research activity, leasing deposits and costs for additional office space. As of June 30, 2020, and December 31, 2019, the Company classified all amounts as a current asset in the consolidated balance sheet, respectively;

 

(ii) As of June 30, 2020, and December 31, 2019, all amounts were classified as a current asset in the consolidated balance sheet;

 

(iii) Other is comprised of deferred financing costs, subscription payments, utilities, travel costs and software licensing. As of June 30, 2020, and December 31, 2019, the Company classified all amounts as a current asset in the consolidated balance sheet.

 

 

 

 

 

 

 

 

 

 

  10  

Zomedica Pharmaceuticals Corp.

Notes to the condensed unaudited interim consolidated financial statements

For the three and six months ended June 30, 2020 and 2019

(Stated in United States dollars)

6. Property and equipment

 

       Computer equipment         Furniture and equipment         Laboratory equipment         Leasehold improvements         Total    
Cost                                        
Balance at December 31, 2018   $ 170,002     $ 181,879     $ 352,637     $ 282,975     $ 987,493  
Additions     218,076       3,415       3,350       65,672       290,513  
Disposals     (2,210 )     -       -       -       (2,210 )
Balance at December 31, 2019     385,868       185,294       355,987       348,647       1,275,796  
Additions     -       -       -       299,268       299,268  
Disposals     (9,933 )     (64,018 )     (13,712 )     (76,455 )     (164,117 )
Balance at June 30, 2020     375,935       121,276       342,275       571,460       1,410,947  
                                         
Accumulated depreciation                                        
Balance at December 31, 2018     104,918       29,585       99,696       36,206       270,405  
Depreciation     88,417       26,617       68,519       93,597       277,150  
Disposals     (901 )     -       -       -       (901 )
Balance at December 31, 2019     192,434       56,202       168,215       129,803       546,654  
Depreciation     44,102       8,857       34,705       66,611       154,275  
Disposals     (2,849 )     (28,505 )     (30,843 )     (26,686 )     (88,883 )
Balance at June 30, 2020     233,687       36,554       172,077       169,728       612,046  
                                         
Net book value as at:                                        
December 31, 2019   $ 193,434     $ 129,092     $ 187,772     $ 218,844     $ 729,142  
June 30, 2020   $ 142,248     $ 84,722     $ 170,198     $ 401,732     $ 798,901  

 

In February 2020, the Company disposed of assets with a net book value of $75,234. The Company received proceeds of $5,400 and recorded a loss of $69,834 in the consolidated statement of loss and comprehensive loss for the three months ended March 31, 2020 and six months ended June 30, 2020.

 

In February 2020, the Company reclassified $299,268 of prepaid expenses to property and equipment for leasehold improvements that became ready for use in February 2020 but were paid for in 2019.

 

 

 

 

 

  11  

Zomedica Pharmaceuticals Corp.

Notes to the condensed unaudited interim consolidated financial statements

For the three and six months ended June 30, 2020 and 2019

(Stated in United States dollars)

7. Intangible assets

 

       Computer software         Trademarks         Website         Total intangible assets   
Cost                                
Balance at December 31, 2018   $ 5,143     $ 16,236     $ -     $ 21,379  
Additions     -       -       531,419       531,419  
Balance at December 31, 2019     5,143       16,236       531,419       552,798  
Additions     -       -       -       -  
Balance at June 30, 2020     5,143       16,236       531,419       552,798  
                                 
Accumulated amortization                                
Balance at December 31, 2018     5,143       3,178               8,321  
Amortization     -       1,082               1,082  
Balance at December 31, 2019     5,143       4,260               9,403  
Amortization     -       544       89,481       90,025  
Balance at June 30, 2020     5,143       4,804       89,481       99,428  
                                 
Net book value as at:                                
December 31, 2019   $ -     $ 11,976     $ 531,419     $ 543,395  
June 30, 2020   $ -     $ 11,432     $ 441,938     $ 453,370  

 

Total estimated future amortization of intangible assets for each fiscal year is as follows:

 

  2020     $ 90,796  
  2021       180,144  
  2022       180,144  
  2023       1,089  
  2024       1,089  
  2025       108  
  Total     $ 453,370  

 

 

 

 

 

 

 

  12  

Zomedica Pharmaceuticals Corp.

Notes to the condensed unaudited interim consolidated financial statements

For the three and six months ended June 30, 2020 and 2019

(Stated in United States dollars)


8. Leases

 

The Company adopted ASC 842 with an initial application date of January 1, 2019. The Company was party to two lease agreements under which it rented office and laboratory space. The rent for both leases was prepaid upon inception and therefore at January 1, 2019, the Company reclassified its prepaid lease balances of $1,613,038 to a right-of-use asset. The Company recorded nil and $42,448 of amortization on the right-of-use asset for the three and six months ended June 30, 2020 (June 30, 2019 - $254,690).

 

On February 1, 2020 the Company cancelled its existing lease with Wickfield Phoenix LLC and entered into a new lease. The new lease period is for 60 months, commencing on February 1, 2020 and ending on January 31, 2025 with a monthly rent payment of $32,452 escalating to $36,525 over the lease period. Upon cancellation of the existing lease, the Company received a refund of prepaid rent in the amount of $1,002,113. The carrying value of the right of use asset was $1,061,210 upon cancellation. In February 2020, the Company recorded a loss on right-of-use asset of $59,097 in the consolidated statements of operations and comprehensive loss.

 

On February 1, 2020, the Company recorded a right-of-use asset and a corresponding lease liability in the amount of $1,553,611 using the Company’s incremental borrowing rate of 12%. During the three and six months ended June 30, 2020, the Company recognized $103,375 and $172,291 in rent expense with $21,763 and $38,992 recorded in research and development expenses and $81,612 and $137,630 recorded in general and administrative expense in the consolidated statements of operations and comprehensive loss. During the three and six months ended June 30, 2019, the Company recognized $5,940 and $11,880 in rent expense with nil recorded in research and development expenses and $5,940 and $11,880 recorded in general and administrative expense in the consolidated statements of operations and comprehensive loss. During the three and six months ended June 30, 2020, the Company also recorded $4,331 in rent expense related to month to month leases with the entirety in general and administrative expense in the consolidated statements of operations and comprehensive loss.

 

 

 

 

 

 

 

 

 

  13  

Zomedica Pharmaceuticals Corp.

Notes to the condensed unaudited interim consolidated financial statements

For the three and six months ended June 30, 2020 and 2019

(Stated in United States dollars)

8. Leases (continued)

 

Right-of-use asset   Premise lease
Cost        
Aggregate lease commitments   $ 2,067,505  
Less: impact of present value     (513,894 )
Balance at June 30, 2020     1,553,611  
         
Reduction in right-of-use asset        
Straight line amortization     172,292  
Interest     (59,805 )
Balance at June 30, 2020     112,487  
         
Net book value as at:        
June 30, 2020   $ 1,441,124  
         
Lease liabilities      Premise lease   
         
Additions   $ 1,553,612  
Payments     (162,260 )
Interest     59,805  
Total lease liabilities at June 30, 2020     1,451,157  
         
Current portion of lease liabilities     232,496  
Long term portion of lease liabilities     1,218,661  
Total lease liabilities at June 30, 2020   $ 1,451,157  

 

Total remaining undiscounted lease liabilities related to the above lease are as follows:
         
2020   $ 194,712  
2021     400,133  
2022     412,137  
2023     424,501  
2024     437,236  
2025     36,326  
Total   $ 1,905,045  

 

 

 

 

  14  

Zomedica Pharmaceuticals Corp.

Notes to the condensed unaudited interim consolidated financial statements

For the three and six months ended June 30, 2020 and 2019

(Stated in United States dollars)

9. Loan arrangements

 

On October 17, 2017, the Company entered into a loan arrangement with a shareholder of the Company, pursuant to which such shareholder has agreed to provide a loan facility to the Company, whereby the Company may borrow up to $5,000,000, with the proceeds to be used for working capital and general corporate purposes. The term of the loan facility is five (5) years, with principal and interest payments being due only at the time of maturity. Under the loan agreement, the Company may borrow in one or more advances, provided however that a minimum amount of $250,000 must be borrowed at any one time and not more than two advances may occur per month. Interest shall accrue at a rate of fourteen percent (14%) per annum, payable upon maturity. As of June 30, 2020, no amounts have been borrowed.

 

In April of 2020, the Company received $527,360 from the SBA’s Paycheck Protection Program. The receipt is currently reported in accounts payable and accrued liabilities. If the loan is required to be repaid it will be granted a two-year term at 1% interest.

 

10. Preferred stock

 

The Company is authorized to issue 20 shares of Series 1 Preferred Shares, all without par value, and each having a stated value of $1,000,000. The Series 1 Preferred Shares do not have voting rights except to the extent required by applicable law and are not convertible into the Company’s common shares. Holders of the Series 1 Preferred Shares will not be entitled to dividends but, in lieu thereof, will receive Net Sales Payments (“Net Sales Payments” is defined as annual payments equal to 9 percent of sales) until such time as the holders have received total Net Sales Payments equal to 9 times the aggregate stated value of the outstanding Series 1 Preferred Shares. The Company will have the right to redeem the outstanding Series 1 Preferred Shares at any time at a redemption price equal to 9 times the aggregate stated value of the Series 1 Preferred Shares outstanding less the aggregate amount of the Net Sales Payments paid (the “Redemption Amount”).

 

Upon any dissolution, liquidation or winding up, whether voluntary or involuntary, holders of Series 1 Preferred Shares will be entitled to a liquidation preference equal to the stated value of the Series 1 Preferred Shares less the Net Sales Payments paid on the Series 1 Preferred Shares.

 

In the event of a fundamental transaction (defined to include an amalgamation, merger or other business combination transaction involving our company in which our shareholders do not have the right to cast more than 50% of the votes that may be cast for the election of directors, or a sale, lease or other disposition of the properties and/or assets of our company as an entirety or substantially as an entirety to a third party), the holders of the Series 1 Preferred Shares will be entitled to receive consideration for their Series 1 Preferred Shares equal to a multiple of the stated value of the Series 1 Preferred Shares ranging from 5.0 to 9.0 depending on the timing of the fundamental transaction, subject to a cap equal to the redemption amount. The Company has assessed the likelihood of any Net Sales Payments to the Series 1 Preferred shareholders to be remote.

 

Issued and outstanding preferred stock:

 

      Number of          
      preferred       Preferred  
      stock       stock amount  
Balance at December 31, 2018     -     $ -  
Stock issued from financing (i)     12       11,961,397  
Balance at December 31, 2019     12     $ 11,961,397  
Balance at June 30, 2020     12     $ 11,961,397  

 

 

 

  15  

Zomedica Pharmaceuticals Corp.

Notes to the condensed unaudited interim consolidated financial statements

For the three and six months ended June 30, 2020 and 2019

(Stated in United States dollars)

11. Common stock

 

The Company is authorized to issue an unlimited number of common shares, all without par value.

 

Issued and outstanding common stock:

 

 

    Number of        
    common     Common  
    stock     stock amount  
Balance at December 31, 2018     97,598,898     $ 30,410,648  
Stock issuance for services (i and ii)     707,236       792,104  
Stock issued from financing (iii and iv)     9,337,529       6,690,922  
Stock issued due to exercise of options     394,735       754,148  
Balance at June 30, 2019     108,038,398     $ 38,647,822  
                 
Balance at December 31, 2019     108,038,398     $ 38,566,820  
Stock issued from financing (v,vi,vii)     175,330,001       15,984,325  
Stock issuance costs     -       (1,755,376 )
Placement agent costs     -       (154,767 )
Stock issued from the financing and exercise of pre-funded warrants (viii)     12,162,492       1,080,289  
Stock issued from the exercise of warrants (ix)     65,509,055       13,607,631  
Balance at June 30, 2020     361,039,946     $ 67,328,922  

 

(i) On January 14, 2019, the Company settled $75,000 of amounts due to a vendor by issuing 49,342 common shares valued at $55,263 at the date of issuance. The Company recorded a $19,737 gain on the settlement of liabilities.

 

(ii) On January 14, 2019, the Company issued 657,894 common shares in satisfaction of $1,000,000 of all remaining milestones under a License and Supply Agreement with a third party. The Company recognized $736,841 as research and development expense, based on the value of the common stock on the date of issuance.

 

(iii) On January 14, 2019, the Company completed a non-brokered private placement, and issued 2,815,789 common shares. Gross proceeds of $4,280,000 were received prior to December 31, 2018.The Company recorded $465 of share issuance costs as an offset to common stock.

 

(iv) On March 28, 2019, the Company completed an underwritten public offering of its common stock pursuant to which the Company sold an aggregate 6,521,740 common shares for gross proceeds of $3,000,000. The Company recorded $592,707 of share issuance costs as an offset to common stock.

 

(v) On February 14, 2020, the Company completed a registered direct offering (“RDO”) of its common shares and a simultaneous private placement of its warrants (“Series A Warrants”) in a fixed combination of one common share and a Series A Warrant to purchase one common share, resulting in the sale of 20,833,334 common shares and Series A Warrants to purchase 20,833,334 common shares at a combined offering price of $0.12 per share and related Series A Warrant. Each Series A Warrant has an exercise price of $0.20 per share, is exercisable six months after issuance and has a term of 5.5 years. The Company also issued warrants to the placement agents to purchase 1,041,667 common shares at an exercise price of $0.15 per share (“Series A Placement Agent Warrants”), which were exercisable immediately upon issuance and have a term of 5 years. In aggregate, the Company issued 20,833,334 common shares, 20,833,334 Series A Warrants in addition to 1,041,667 Series A Placement Agent Warrants.

 

The Company raised $2,500,000 in gross proceeds as part of the RDO. The Company recorded $1,705,655 as the value of common shares under common stock and $794,345 as the value of Series A Warrants under additional paid-in-capital in the consolidated statements of shareholders’ equity.

 

 

  16  

Zomedica Pharmaceuticals Corp.

Notes to the condensed unaudited interim consolidated financial statements

For the three and six months ended June 30, 2020 and 2019

(Stated in United States dollars)
11. Common stock (continued)

 

The direct cash costs related to the issuance of the common shares and warrants issued in February were $348,220. These direct costs were recorded as an offset against the statement of shareholders’ equity with $238,217 being recorded under capital stock and $110,003 being recorded under additional paid-in-capital. The Company also recorded the value of the Series A Placement Agent Warrants in the amount of $52,496 as an offset against the statement of shareholders’ equity with $35,816 being recorded under capital stock and $16,680 being recorded under additional paid-in-capital.

 

(vi) On April 9, 2020 the Company completed a confidentially marketed public offering (“CMPO”) of its common shares and warrants (“Series B Warrants”) of 33,333,334 common shares and warrants to purchase up to 16,666,667 common shares. The securities were sold in a fixed combination of one common share and 0.5 of a Series B Warrant at a combined offering price of $0.12 per share and accompanying warrant. Each whole warrant is exercisable immediately for one common share after issuance, at an exercise price of $0.15 per share and has a term of 5 years. The Company also issued warrants to the placement agents to purchase 1,666,667 common shares at an exercise price of $0.15 per share (“Series B Placement Agent Warrants”), which were exercisable immediately upon issuance and have a term of 5 years. In aggregate, the Company issued 33,333,334 common shares,16,666,667 Series B Warrants in addition to 1,666,667 Series B Placement Agent Warrants.

 

The Company raised $4,000,000 in gross proceeds in the CMPO. The Company recorded $2,942,248 as the value of common shares under common stock and $1,057,752 as the value of Series B Warrants under additional paid-in-capital in the consolidated statements of shareholders’ equity.

 

The direct cash costs related to the issuance of the common shares and warrants issued in April were $582,977. These direct costs were recorded as an offset against the statement of shareholders’ equity with $428,283 being recorded under capital stock and $154,694 being recorded under additional paid-in-capital. The Company also recorded the value of the Series B Placement Agent Warrants in the amount of $161,714 as an offset against the statement of shareholders’ equity with $118,951 being recorded under capital stock and $42,763 being recorded under additional paid-in-capital.

 

(vii) On May 29, 2020 the Company completed a public offering of its common shares or common share equivalents (“Series C pre-funded warrants”), and warrants (“Series C Warrants”) in a fixed combination of one common share or Series C pre-funded warrant, and a Series C Warrant to purchase one common share, resulting in the sale of 121,163,333 common shares, 12,170,000 pre-funded warrants, and Series C Warrants to purchase 133,333,333 common shares at a combined offering price of $0.15 per share for the common shares and related Series C Warrant, or a combined offering price of $0.1499 per pre-funded warrant and related Series C warrant. Each Series C pre-funded warrant has an exercise price of $0.0001 per share, is exercisable immediately after issuance, is exercisable only on a cashless exercise basis, and will not expire prior to exercise. Each Series C Warrant has an exercise price of $0.15 per share, is exercisable immediately after issuance and has a term of 2 years.

 

The Company raised $19,998,783 in gross proceeds as part of the public offering. The Company recorded $11,336,422 as the value of common shares under common stock, $1,080,289 as the value of the pre-funded warrants and $7,582,072 as the value of Series C Warrants under additional paid-in-capital in the consolidated statements of shareholders’ equity.

 

The direct cash costs related to the issuance of the common shares, Series C pre-funded warrants and Series C Warrants issued in May were $1,908,202. These direct costs were recorded as an offset against the statement of shareholders’ equity with $1,088,876 being recorded under capital stock and $819,327 being recorded under additional paid-in-capital.

 

 

  17  

Zomedica Pharmaceuticals Corp.

Notes to the condensed unaudited interim consolidated financial statements

For the three and six months ended June 30, 2020 and 2019

(Stated in United States dollars)
11. Common stock (continued)

 

(viii) All Series C pre-funded warrants were exercised in June 2020. Upon exercise the value of the warrant exercise was based on the one-day VWAP of the Company stock the day before the exercise request date. The cashless exercise option resulted in the issuance of 12,162,492 shares.

 

(ix)

As of June 30, 2020, 11,602,084 Series B Warrants have been exercised, resulting in additional cash proceeds of $1,740,313 and 53,906,971 Series C Warrants have been exercised, resulting in additional cash proceeds of $8,086,046. All warrants were exercised during the three months ended June 30, 2020.

 

12. Shares to be issued

 

The Company received cash on Series C Warrant exercises in for 9,770,000 shares at an exercise price of $0.15 per share, for aggregate gross proceeds of $1,465,500. The Company issued the shares in the subsequent period.

 

13. Stock-based compensation

 

During the three months ended June 30, 2020 and 2019, nil options were exercised. During the six months ended June 30, 2020 and 2019, nil and 394,735 options were exercised, respectively. During the three months ended June 30, 2020 and 2019, the Company issued 2,000,000 and nil stock options, respectively. During the six months ended June 30, 2020 and 2019, the Company issued 7,056,000 and 5,995,000 stock options, respectively, each option entitling the holder to purchase one common share of the Company.

 

The continuity of stock options are as follows:

 

     

Number of

options

     

Weighted avg

exercise price

 
Balance at December 31, 2019     7,040,265     $ 1.28  
Stock options forfeited January 23, 2020     (50,000 )     1.52  
Stock options forfeited February 25, 2020     (5,000 )     1.12  
Stock options forfeited March 1, 2020     (50,000 )     1.52  
Stock options granted March 14, 2020     5,056,000       0.19  
Stock options forfeited April 21, 2020     (150,000 )     0.19  
Stock options forfeited May 4, 2019     (15,000 )     0.19  
Stock options forfeited May 5, 2020     (30,000 )     1.52  
Stock options forfeited May 7, 2020     (15,000 )     1.52  
Stock options forfeited June 11, 2020     (15,000 )     1.52  
Stock options granted June 16, 2020     2,000,000       0.19  
Balance at June 30, 2020     13,766,265     $ 0.73  
Vested at June 30, 2020     8,805,932     $ 1.04  

 

 

  18  

Zomedica Pharmaceuticals Corp.

Notes to the condensed unaudited interim consolidated financial statements

For the three and six months ended June 30, 2020 and 2019

(Stated in United States dollars)
13. Stock-based compensation (continued)

 

As at June 30, 2020, details of the issued and outstanding stock options were as follows:

 

Grant date       Exercise price        Number of options issued and outstanding         Number of vested options outstanding           Number of unvested options outstanding           Weighted Avg Remaining Life outstanding (years)    
January 10, 2019   $ 1.52       5,375,265       5,375,265       -       0.53  
August 19, 2019     0.26       500,000       500,000       -       1.14  
August 19, 2019     0.35       100,000       100,000       -       1.14  
August 19, 2019     0.45       100,000       100,000       -       1.14  
August 19, 2019     0.55       100,000       100,000       -       1.14  
August 19, 2019     0.65       100,000       100,000       -       1.14  
August 19, 2019     0.75       100,000       100,000       -       1.14  
September 16, 2019     0.43       500,000       500,000       -       1.21  
March 14, 2020     0.19       4,891,000       1,264,000       3,627,000       4.71  
June 16, 2020     0.19       2,000,000       666,667       1,333,333       4.96  
Balance at June 30, 2020             13,766,265       8,805,932       4,960,333          

 

The fair value of options granted during the three and six months ended June 30, 2020 was estimated using the Black-Scholes option pricing model to determine the fair value of options granted using the following assumptions:

 

  June 16, 2020   March 14, 2020   January 10, 2019
Volatility 100%   87%   68%
Risk-free interest rate 0.21%   0.49%   2.56%
Expected life (years) 5   5   2
Divedend yield 0%   0%   0%
Common share price $0.19   $0.18   $1.23
Strike price $0.19   $0.19   $1.52
Forfeiture rate nil   nil   nil

 

The Company recorded $135,844 and $290,866 of stock-based compensation for the three and six months ended June 30, 2020 (2019 – nil and $2,341,104). For the three and six months ended June 30, 2020 the Company recorded nil cash receipts due to the exercise of options. The Company recorded nil in cash receipts due to the exercise of options during the three months ended June 30, 2019. The Company recorded the cash receipt of $600,000 and reclassified $154,148 of stock-based compensation to common stock due to the exercise of options during the six months ended June 30, 2019.

 

The Company has estimated its stock option forfeitures to be nil for the three and six months ended June 30, 2020 (three and six months ended June 30, 2019 - nil).

 

 

  19  

Zomedica Pharmaceuticals Corp.

Notes to the condensed unaudited interim consolidated financial statements

For the three and six months ended June 30, 2020 and 2019

(Stated in United States dollars)

14. Warrants

 

In connection with the February 14, 2020 RDO, the Company issued 20,833,334 five and one half-year Series A Warrants to purchase one common share at an exercise price of $.20. The Company also issued 1,041,667 placement agent warrants to purchase one common share at an exercise price of $0.15 per share.

 

In connection with the April 9, 2020 CMPO, the Company issued 16,666,667 five-year Series B Warrants to purchase one common share at an exercise price of $0.15. The Company also issued 1,666,667 placement agent warrants to purchase one common at an exercise price of $0.15 per share.

 

In connection with the May 29, 2020 public offering, the Company issued 133,333,333 two-year Series C Warrants to purchase on share of common stock at an exercise price of $0.15. The Company also issued 12,170,000 Series C pre-funded warrants to purchase common shares at an exercise price of $0.0001 on a cashless exercise basis. As of June 30, 2020, the Series C pre-funded warrants have all been exercised.

 

As at June 30, 2020, details of the outstanding warrants were as follows:

 

Original Issue date    

Exercise

Price

     

 Warrants

Outstanding 

      Weighted Average Remaining Life  
                         
February 14, 2020     0.20       20,833,334       5.13  
February 14, 2020     0.15       1,041,667       4.62  
April 9, 2020     0.15       6,731,250       4.77  
May 29, 2020     0.15       79,426,362       1.91  
Balance at June 30, 2020             108,032,613          

 

 

 

  20  

Zomedica Pharmaceuticals Corp.

Notes to the condensed unaudited interim consolidated financial statements

For the three and six months ended June 30, 2020 and 2019

(Stated in United States dollars)

14. Warrants (continued)

 

The fair value of warrants issued the three and six months ended June 30, 2020 was estimated using the Black-Scholes option pricing model to determine the fair value of warrants granted using the following assumptions:

 

   

Series A Warrants

February 14, 2020

 

Placement Agent Warrants

February 14, 2020

Volatility   87%   87%
Risk-free interest rate   1.42%   1.42%
Expected life (years)   5.5   5
Dividend yield   0%   0%
Common share price   $0.12   $0.12
Strike price   $0.20   $0.15
Forfeiture rate   nil   nil
         
 

Series B Warrants

April 9, 2020

 

Placement Agent Warrants

April 9, 2020

Volatility   99%   99%
Risk-free interest rate   0.41%   0.41%
Expected life (years)   5   5
Dividend yield   0%   0%
Common share price   $0.14   $0.14
Strike price   $0.15   $0.15
Forfeiture rate   nil   nil
         
   

Series C Warrants

May 29, 2020

 

Volatility   118%  
Risk-free interest rate   0.16%  
Expected life (years)   2  
Dividend yield   0%  
Common share price   $0.16  
Strike price   $0.15  
Forfeiture rate   nil  

 

 

 

  21  

Zomedica Pharmaceuticals Corp.

Notes to the condensed unaudited interim consolidated financial statements

For the three and six months ended June 30, 2020 and 2019

(Stated in United States dollars)
15. Commitments and contingencies

 

On November 26, 2018, the Company entered into a Development and Supply Agreement and as part of this agreement, the Company has contingent future outflows as follows:

 

  1st payment: At the later of the achievement of a future milestone event or September 12, 2019, can decide to receive payment as follows:
       
    ° $3,000,000 in cash or
       
    ° $1,500,000 in cash and $1.95 million in equity
       
  2nd payment: At the later of the achievement of a future milestone or February 19, 2020 - $2,000,000 in cash.
       
  3rd payment: At the later of the achievement of a future milestone event or September 12, 2019, can decide to receive payment as follows:
       
    ° $3,000,000 in cash or
       
    ° $1,500,000 in cash and $1.95 million in equity
       
  4th payment: At the later of the achievement of a future milestone or February 19, 2020 - $2,000,000 in cash.

 

As of June 30, 2020, the first and second milestones have been met and paid. The third milestone was met and paid in April 2020. Per the terms of the agreement the cash option of $3,000,000 was chosen. The fourth milestone payment has not been met.

 

On May 10, 2018, the Company entered into a Development, Commercialization and Exclusive Distribution Agreement. As part of the agreement, the Company is required to make the following future milestone payments:

 

  1st payment: $3,500,000 in cash payment upon the achievement of future development milestones
     
  2nd payment: $3,500,000 in equity based on the number of the Company’s common stock determined by dividing the amount due by the volume-weighted average price of the Company’s common stock on the NYSE American exchange over the 10 trading days prior to the achievement of the milestone event.
       

As of June 30, 2020, neither of the future development milestones related to the above agreement have been met.

 

On November 1, 2019, Heska Corporation (“Heska”) filed a complaint for damages and injunctive relief (the “Complaint”) in the United States District Court for the Middle District of North Carolina, Case 1:19-cv-01108-LCB-JLW, against Qorvo US, Inc. (“Qorvo US”), Qorvo Biotechnologies, LLC (“Qorvo Biotech” and, together with Qorvo US, “Qorvo”) and the Company (collectively with Qorvo, the “Defendants”). The Complaint alleges, among other things, that the Defendants improperly obtained Heska’s trade secrets and confidential information and/or conspired to use improper means to misappropriate Heska’s trade secrets related to an instrument and related consumable products for performing immunoassay analysis of biomarkers and other substances. The Complaint seeks compensatory and exemplary damages, as well as preliminary and permanent injunctive relief to prevent the Defendants from commercializing the Company’s TRUFORMATM diagnostic instrument. On January 21, 2020, the Defendants filed a motion seeking dismissal of the Complaint. On February 11, 2020, Heska filed its response to the Defendants’ motion to dismiss to which the Defendants responded on February 25, 2020. The Court has not yet ruled on Defendants’ motion to dismiss, and the litigation remains stayed pending a ruling on that motion. The Company believes that the allegations in the Complaint have no merit and will not have a material adverse effect on the Company’s business, results of operations or financial condition. Under the terms of the Development and Supply Agreement, dated November 26, 2018, by and between Qorvo Biotech and the Company (the “Qorvo Agreement”), Qorvo Biotech agreed to indemnify the Company and certain related parties against claims alleging infringement or misappropriation of third-party intellectual property rights, subject to certain limitations and exceptions. Qorvo Biotech has notified the Company that Qorvo Biotech has assumed the defense of the Complaint and will indemnify the Company for losses arising from the Complaint in accordance with the terms of the Qorvo Agreement. Qorvo Biotech has further advised the Company that it intends to mount a vigorous defense to the claims in the Complaint, and that it believes the allegations contained in the Complaint are without merit.

 

16. Financial instruments

 

(a) Fair values

 

The Company follows ASC topic 820, “Fair Value Measurements” which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of ASC topic 820 apply to other accounting pronouncements that require or permit fair value measurements. ASC topic 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date; and establishes a three level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Inputs refers broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. To increase consistency and comparability in fair value measurements and related disclosures, the fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The three levels of the hierarchy are defined as follows:

 

 

  22  

Zomedica Pharmaceuticals Corp.

Notes to the condensed unaudited interim consolidated financial statements

For the three and six months ended June 30, 2020 and 2019

(Stated in United States dollars)

16. Financial instruments (continued)

 

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

 

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly for substantially the full term of the financial instrument.

 

Level 3 inputs are unobservable inputs for asset or liabilities.

 

The categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

 

(i) The Company calculates expected volatility based on historical volatility of the Company’s peer group that is publicly traded for options.

 

An increase/decrease in the volatility would have resulted in an increase/decrease in the fair value of the options.

 

The carrying values of cash, tax credit and other receivables, accounts payable and accrued liabilities and shareholder loans payable approximates their fair values because of the short-term nature of these instruments.

 

(b) Interest rate and credit risk

 

Interest rate risk is the risk that the value of a financial instrument might be adversely affected by a change in interest rates. The Company does not believe that the results of operations or cash flows would be affected to any significant degree by a sudden change in market interest rates, relative to interest rates on cash and cash equivalents, due to the short-term nature of these balances.

 

The Company is also exposed to credit risk at period end from the carrying value of its cash. The Company manages this risk by maintaining bank accounts with a Canadian Chartered Bank. The Company’s cash is not subject to any external restrictions.

 

(c) Foreign exchange risk

 

The Company has balances in Canadian dollars that give rise to exposure to foreign exchange (“FX”) risk relating to the impact of translating certain non-U.S. dollar balance sheet accounts as these statements are presented in U.S. dollars. A strengthening U.S. dollar will lead to a FX loss while a weakening U.S. dollar will lead to a FX gain. For each Canadian dollar balance of $1.0 million, a +/- 10% movement in the Canadian currency held by the Company versus the U.S. dollar would affect the Company’s loss and other comprehensive loss by $0.1 million.

 

  (d) Liquidity risk

 

Liquidity risk is the risk that the Company will encounter difficulty raising liquid funds to meet commitments as they fall due. In meeting its liquidity requirements, the Company closely monitors its forecasted cash requirements with expected cash drawdown.

 

The following are the contractual maturities of the undiscounted cash flows of financial liabilities as at June 30, 2020 and December 31, 2019:

 

 

  23  

Zomedica Pharmaceuticals Corp.

Notes to the condensed unaudited interim consolidated financial statements

For the three and six months ended June 30, 2020 and 2019

(Stated in United States dollars)

16. Financial instruments (continued)

 

                                    June 30, 2020  
      Less than       3 to 6       6 to 9       9 months       Greater than          
      3 months       months       months       1 year       1 year       Total  
       $         $         $         $         $         $   
Third parties                                                
Accounts payable and accrued liabilities     1,731,469       -       -       -       -       1,731,469  
      1,731,469       -       -       -       -       1,731,469  
                                                 
                                      December 31, 2019  
      Less than       3 to 6       6 to 9       9 months       Greater than          
      3 months       months       months       1 year       1 year       Total  
       $         $         $         $         $         $   
Third parties                                                
Accounts payable and accrued liabilities     2,087,525       -       -       -       -       2,087,525  
      2,087,525       -       -       -       -       2,087,525  

 

17. Segmented information

 

The Company's operations comprise a single reportable segment engaged in the research, development targeting health and wellness solutions for the companion animal. As the operations comprise a single reportable segment, amounts disclosed in the financial statements for loss for the period, depreciation and total assets also represent segmented amounts. In addition, all of the Company's long-lived assets are in the United States of America (“US”).

 

      June 30,        December 31,  
      2020       2019  
       $         $  
Total assets                
Canada     27,291,934       249,929  
US     5,469,653       3,933,055  
                 
Total US property and equipment     798,901       729,142  
Tota US right-of-use asset     1,441,124       1,103,658  
      2,240,025       1,832,800  

 

 

 

  24  

Zomedica Pharmaceuticals Corp.

Notes to the condensed unaudited interim consolidated financial statements

For the three and six months ended June 30, 2020 and 2019

(Stated in United States dollars)

18. Schedule of expenses

 

 

    For the three months ended June 30,   For the three months ended June 30,
    2020   2019
    Research and   Professional   General and   Research and   Professional   General and
    Development   Fees   Administrative   Development   Fees   Administrative
                         
Salaries, bonus and benefits   $ 129,259     $ -     $ 726,290     $ 258,493     $ -     $ 674,088  
Contracted expenditures     515,944       -       -       557,719       -       -  
Marketing and investor relations     -       -       67,827       -       -       78,905  
Travel and accommodation     -       -       393       2,727       -       62,473  
Insurance     202       -       46,318       1,430       -       19,319  
License fees     3,000,000       -       -       50,000       -       -  
Office     8,282       -       44,406       13,169       -       30,214  
Consultants     75,150       282,791       -       89,094       231,647       -  
Regulatory     151,073       -       21,888       42,647       -       26,066  
Rent     21,763       -       81,612       -       -       5,940  
Supplies     6,498       -       -       46,228       -       4,314  
Total   $ 3,908,171     $ 282,791     $ 988,734     $ 1,061,507     $ 231,647     $ 901,319  

 

    For the six months ended June 30,   For the six months ended June 30,
    2020   2019
    Research and   Professional   General and   Research and   Professional   General and
    Development   Fees   Administrative   Development   Fees   Administrative
                         
Salaries, bonus and benefits   $ 315,643     $ -     $ 1,503,436     $ 503,800     $ -     $ 3,646,260  
Contracted expenditures     878,812       -       -       1,812,566       -       -  
Marketing and investor relations     -       -       117,379       -       -       131,415  
Travel and accommodation     407       -       12,915       12,776       -       119,737  
Insurance     441       -       92,349       2,896       -       40,100  
License fees     3,000,000       -       -       5,936,841       -       -  
Office     22,077       -       298,196       19,597       -       97,457  
Consultants     78,126       573,472       -       148,880       989,946       -  
Regulatory     151,073       -       110,356       63,645       -       50,170  
Rent     38,992       -       137,630       -       -       11,880  
Supplies     17,999       -       -       91,881       -       16,658  
Total   $ 4,503,570     $ 573,472     $ 2,272,261     $ 8,592,882     $ 989,946     $ 4,113,677  

 

19. Capital risk management

 

The capital of the Company includes equity, which is comprised of issued common shares, additional paid-in capital, and accumulated deficit. The Company's objective when managing its capital is to safeguard the ability to continue as a going concern in order to provide returns for its shareholders, and other stakeholders and to maintain a strong capital base to support the Company's core activities.

 

 

 

  25  

Zomedica Pharmaceuticals Corp.

Notes to the condensed unaudited interim consolidated financial statements

For the three and six months ended June 30, 2020 and 2019

(Stated in United States dollars)

20. Loss per share

 

      For the three months ended June 30,       For the six months ended June 30,  
      2020       2019       2020       2019  
                                 
Numerator                                
Net loss for the period   $ 5,307,990     $ 2,404,427     $ 7,758,607     $ 14,081,337  
Denominator                                
Weighted average shares - basic     214,830,818       108,038,398       166,814,645       104,528,705  
Warrants     -       -       -       -  
Stock options     -       -       -       -  
Denominator for diluted loss per share     214,830,818       108,038,398       166,814,645       104,528,705  
                                 
Loss per share - basic and diluted   $ (0.02 )   $ (0.02 )   $ (0.05 )   $ (0.13 )

 

For the above-mentioned periods, the Company had securities outstanding which could potentially dilute basic earnings per share in the future but were excluded from the computation of diluted loss per share in the periods presented, as their effect would have been anti-dilutive.

 

21. Related party transactions and key management compensation

 

Key management personnel are comprised of the Company’s directors and executive officers. In addition to their salaries, key management personnel also receive share-based compensation. Key management personnel compensation is as follows:

 

    For the three months ended June 30,     For the six months ended June 30,  
    2020     2019     2020     2019  
Salaries and benefits, including bonuses   $ 183,831     $ 375,177     $ 340,366     $ 635,898  
Stock-based compensation     279,944       -       379,557       1,644,325  
Total   $ 463,775     $ 375,177     $ 719,923     $ 2,280,223  

 

  26  

Zomedica Pharmaceuticals Corp.

Notes to the condensed unaudited interim consolidated financial statements

For the three and six months ended June 30, 2020 and 2019

(Stated in United States dollars)
22. Subsequent events

 

On July 7, 2020 the Company completed a $30,000,000 public offering of its common shares or common share equivalent (“Series D pre-funded warrants”), and warrants (“Series D Warrants”) in a fixed combination of one common share or pre-funded warrant and a Series D Warrant to purchase one common share, resulting in the sale of 162,500,000 common shares, 25,000,000 Series D pre-funded warrants, and Series D Warrants to purchase 187,500,000 common shares at a combined offering price of $0.16 per share for the common shares and related Series D warrants or a combined offering price of $0.1599 per pre-funded warrant and related Series D warrant. Each Series D pre-funded warrant has an exercise price of $0.0001 per share, is exercisable immediately after issuance, is exercisable only on a cashless exercise basis, and will not expire prior to exercise. Each Series D Warrant has an exercise price of $0.16 per share, is exercisable immediately after issuance and has a term of 2 years.

 

As part of this transaction, one of the Company’s directors purchased 625,000 shares for $100,000 and received Series D Warrants to purchase an additional 625,000 common shares.

 

As of July 20, 2020, all the Series D pre-funded warrants have all been exercised.

 

23. Comparative figures

 

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations. Adjustments have been made to the consolidated schedule of expenses for the three and six months ended June 30, 2019, to classify health insurance benefits as part of salaries, wages and bonuses and audit fees to professional fees. This change in classification does not affect previously reported cash flows from operating activities in the consolidated statements of cash flows.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  27  

 

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATION

 

The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the related notes and the other financial information included elsewhere in this Quarterly Report. This discussion contains forward-looking statements and forward-looking information under applicable Canadian securities legislation (collectively, “forward-looking statements”) that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Quarterly Report, and those set forth in our most recent Annual Report on Form 10-K particularly those under “Risk Factors” discussed below and in our most recent Annual Report on Form 10-K.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This report on Form 10-Q contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and pursuant to applicable Canadian securities legislation that are based on management’s beliefs and assumptions and on information currently available to management. Some of the statements under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Form 10-Q contain forward-looking statements. In some cases, you can identify forward-looking statements through our use of words such as “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words.

 

There are a number of important factors that could cause the actual results to differ materially from those expressed in any forward-looking statement made by us. These factors include, but are not limited to:

 

· the success, cost and timing of our research and development activities, validation studies and pivotal trials, including with respect to our lead product candidates, TRUFORMA™ and ZM-020;

 

· our ability to obtain, and the requirements for, regulatory approval from the Food and Drug Administration’s Center for Veterinary Medicine and/or the USDA Center for Veterinary Biologics for our pharmaceutical and diagnostic product candidates, as applicable;

 

· our ability to obtain funding for our operations;

 

· the ability of our contract research organizations to appropriately conduct our safety studies and certain development activities;

 

· the ability of our contract manufacturing organizations to manufacture and supply our product candidates in accordance with current Good Manufacturing Practices and our clinical needs;

 

· our plans to develop and commercialize our product candidates;

 

· the potential impact of the novel coronavirus pandemic on our operations, including the development and commercialization of our TRUFORMA™ platform and the five initial assays;

 

· our ability to develop and commercialize product candidates that can compete effectively against the product candidates developed and commercialized by our competitors or the current standards of care (including human generic drugs);

 

· the size and growth of the veterinary diagnostics and therapeutics markets;

  28  

 

 

· our ability to obtain and maintain intellectual property protection for our current and future product candidates;

 

· regulatory developments in the United States;

 

· the loss of key scientific or management personnel;

 

· our expectations regarding the period during which we will be an “emerging growth company” under the JOBS Act;

 

· the accuracy of our estimates regarding expenses, future revenues, capital requirements and needs for additional financing; and

 

· our status as a “passive foreign investment company” for U.S. federal income tax purposes.

 

The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with that may cause our actual results to differ from those anticipate in our forward-looking statements. Please see “Risk Factors” below and in our most recent Annual Report on Form 10-K for additional risks which could adversely impact our business and financial performance.

 

All forward-looking statements are expressly qualified in their entirety by this cautionary notice. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this report. We have no obligation, and expressly disclaim any obligation, to update, revise or correct any of the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. We have expressed our expectations, beliefs and projections in good faith, and we believe they have a reasonable basis. However, we cannot assure you that our expectations, beliefs or projections will result or be achieved or accomplished.

 

Overview

 

We are a development stage veterinary diagnostic company focused on creating point-of-care diagnostic platforms for use by veterinarians treating companion animals (canine, feline, and equine) by focusing on the unmet needs of clinical veterinarians. We believe that our diagnostic platforms have the potential to significantly improve the diagnosis and treatment of various diseases affecting companion animals. We believe that there are significant unmet medical needs for point-of-care diagnostic tools for use on pets, and that the pet diagnostic segment of the animal health industry is likely to grow substantially as new diagnostic tools and treatments are identified, developed, and marketed specifically for companion animals.

 

Our strategic focus is on the final development and commercialization of our TRUFORMA™ diagnostic biosensor platform and the first five assays for the detection of adrenal and thyroid disorders in cats and dogs. The TRUFORMA™ platform uses Bulk Acoustic Wave (BAW) technology to provide a non-optical and fluorescence free detection system for use at the point-of-care. We believe that BAW technology will enable precise and repeatable test results at the point-of-care during a typical veterinary appointment. We believe that the TRUFORMA™ diagnostic platform does not require pre-market regulatory approval for use with companion animals in the United States.

 

In our Annual Report on Form 10-K for the year ended December 31, 2019, we stated the following expectations with respect to our TRUFORMA™ platform:

 

verification of TRUFORMA’s™ five initial assays was expected to be completed by the end of the first quarter of 2020;
   
our goal was to complete validation of TRUFORMA’s™ five initial assays by the end of the second quarter of 2020; and
   
we expected to commence commercialization of the five initial assays in select strategic markets by the end of 2020.

 

  29  

 

However, the COVID-19 pandemic has impacted our expected timing for the development and commercialization of our TRUFORMA™ platform and the five initial assays due to a number of factors, including the following:

 

· our development partner significantly has reduced the number of employees working in its facilities which has delayed the completion of the verification of the five initial TRUFORMA™ assays and the manufacturing of commercial quantities of the TRUFORMA™ platform and the related assays;

 

· veterinary hospitals and clinics that had agreed to participate in the validation of our initial TRUFORMA™ assays have, at times, either shut down or limited their operations to those involving only life-threatening conditions; and,

 

· potential customers have restricted access to their facilities which will affect our ability to perform on-site demonstrations and other marketing activities.

 

Following the commercial launch of TRUFORMA™, we expect to expand our TRUFORMA™ assay offerings and to continue the development of our second point- of-care diagnostic platform based on miniaturized laser-based Raman spectroscopy technology designed to detect pathogens in companion animals. We believe this platform will enable the identification of biological and biochemical signatures in complex biological samples and has the potential to achieve reference lab sensitivity/specificity to screen for a wide range of pathogens in companion animal feces, urine, respiratory, and dermatological samples in minutes without the need for extensive sample prep or the use of reagents. This pathogen diagnostic platform requires a small fecal sample preparation. Additionally, the platform has automated analysis and does not require specialized staff training. Because we are focused on the development and commercialization of the TRUFORMA™ platform, we have deferred work on this pathogen diagnostic platform. We believe that this pathogen diagnostic platform does not require pre-market regulatory approval for use with companion animals in the United States.

 

We have performed initial development work on a circulating tumor cell (CTC) “liquid biopsy” platform for use in a reference lab setting as a canine cancer diagnostic. This platform is intended for use to detect canine cancers faster, more affordably and less invasively compared to existing methods, which can be expensive and cost-prohibitive for pet owners. We have worked on the development of an assay for use with this platform that targets hard-to-diagnose canine cancers, such as hemangiosarcoma and osteosarcoma.

 

We are a development-stage company with no products approved for marketing and sale, and we have not generated any revenue. We have incurred significant net losses since our inception. We incurred net losses of $5,307,990 and $7,758,607 for the three and six months ended June 30, 2020 and loss of $2,404,427 and $14,081,337 for the three and six months ended June 30, 2019. These losses have resulted principally from costs incurred in connection with investigating and developing our product candidates, research and development activities, and general and administrative costs associated with our operations. As of June 30, 2020, we had an accumulated deficit of $59,816,448 and cash and cash equivalents of $29,103,049.

 

For the foreseeable future, we expect to continue to incur losses, which will increase significantly from historical levels as we expand our product development activities, commercialize the resulting products if they do not require U.S. Food and Drug Administration’s Center for Veterinary Medicine, or FDA-CVM, pre-market approval, and seek regulatory approvals for our product candidates where required from the FDA-CVM or the United States Department of Agriculture Center for Veterinary Biologics, or the USDA-CVB.

 

For further information on the regulatory, business and product pipeline, please see the “Business” section of our Annual Report on Form 10-K. For further information on the risk factors we face, please see the “Risk Factors” section of our Annual Report on Form 10-K and this Quarterly Report on Form 10-Q.

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Revenue

 

We do not have any products approved for sale, have not generated any revenue from product sales since our inception and do not expect to generate any revenue from the sale of products in the near future. If our development efforts result in clinical success or collaboration agreements with third parties for any of our product candidates, we may generate revenue from those product candidates.

 

Operating Expenses

 

The majority of our operating expenses to date have been for the general and administrative activities related to general business activities, capital market activities and stock-based compensation, and research and development activities related to the development of our product candidates.

 

Research and Development Expense

 

All costs of research and development are expensed in the period in which they are incurred. Research and development costs primarily consist of salaries and related expenses for personnel, fees paid to consultants, outside service providers, professional services, travel costs and materials used in clinical trials and research and development.

   

General and Administrative Expense

 

General and administrative expense consists primarily of personnel costs, including salaries, related benefits and stock-based compensation for employees, consultants and directors. General and administrative expenses also include rent and other facilities costs and professional and consulting fees for legal, accounting, tax services and other general business services.

 

Professional Fees

 

Professional fees include attorney’s fees, accounting fees and consulting fees incurred in connection with product investigation and analysis, regulatory analysis, government relations, audit, securities offerings, investor relations, and general corporate and intellectual property advice.

 

Income Taxes

 

As of December 31, 2019, we had net operating loss carryforwards for federal and state income tax purposes of $16,140,344 and non-capital loss carryforwards for Canadian income tax purposes of approximately $20,366,610, which will begin to expire in fiscal year 2035. We have evaluated the factors bearing upon the realizability of our deferred tax assets, which are comprised principally of net operating loss carryforwards and non-capital loss carryforwards. We concluded that, due to the uncertainty of realizing any tax benefits as of December 31, 2019, a valuation allowance was necessary to fully offset our deferred tax assets.

 

Critical Accounting Policies and Significant Judgments and Estimates

 

Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, and revenue, costs and expenses and related disclosures during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments, including those described below. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

While our significant accounting policies are more fully described in Note 3 of the notes to our consolidated financial statements appearing elsewhere in this report, we believe that the estimates and assumptions involved in the following accounting policies may have the greatest potential impact on our financial statements.

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JOBS Act

 

The Jumpstart Our Business Startups Act, or the JOBS Act, contains provisions that, among other things, reduce certain reporting requirements for an “emerging growth company.” We have irrevocably elected not to avail ourselves of the JOBS Act provision that an emerging growth company may delay adopting new or revised accounting standards until such times as those standards apply to private companies.

 

In addition, we are in the process of evaluating the benefits of relying on the other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if as an “emerging growth company” we choose to rely on such exemptions, we may not be required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404, and (ii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis). These exemptions will apply until December 31, 2022 or until we no longer meet the requirements of being an “emerging growth company,” whichever is earlier.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the year. Actual results could differ from those estimates.

 

Areas where significant judgment is involved in making estimates are, the determination of fair value of stock-based compensation, the useful lives of property and equipment, allocation of proceeds from financings to shares and warrants, fair value of placement agent warrants and forecasting future cash flows for assessing the going concern assumption.

 

Research and Development Costs

 

Research and development expenses comprise costs incurred in performing research and development activities, including salaries and benefits, safety and efficacy studies and contract manufacturing costs, contract research costs, patent procurement costs, materials and supplies, and occupancy costs. Research and development activities include internal and external activities associated with research and development studies of current product candidates and advancing product candidates towards a goal of obtaining regulatory approval to manufacture and market the product candidate.

 

Research and development costs related to continued research and development programs are expensed as incurred in accordance with ASC topic 730.

 

Translation of Foreign Currencies

 

The functional currency, as determined by management, is U.S. dollars, which is also our reporting currency. Transactions denominated in currencies other than U.S. dollars and the monetary value of assets and liabilities are remeasured at the period-end exchange rates. Revenue and expenses are measured at rates of exchange prevailing on the transaction dates. All of the exchange gains or losses resulting from these other transactions are recognized in the consolidated statements of operations and comprehensive loss.

 

Stock-Based Compensation

 

We measure the cost of equity-settled transactions by reference to the fair value of the equity instruments at the date at which they are granted if the fair value of the goods or services received by us cannot be reliably estimated.

 

We calculate stock-based compensation using the fair value method, under which the fair value of the options at the grant date is calculated using the Black-Scholes Option Pricing Model, and subsequently expensed over the vesting period of the option using the graded vesting method. The provisions of our stock-based compensation plans do not require us to settle any options by transferring cash or other assets, and therefore we classify the awards as equity. Stock-based compensation expense recognized during the period is based on the value of stock-based payment awards that ultimately are expected to vest. We estimate forfeitures at the time of grant and revise these estimates, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The expected term, which represents the period of time that options granted are expected to be outstanding, is estimated based on an average of the term of the options. The risk-free rate assumed in valuing the options is based on the Canadian treasury yield curve in effect at the time of grant for the expected term of the option. The expected dividend yield percentage at the date of grant is nil as we are not expected to pay dividends in the foreseeable future.

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Loss Per Share

 

Basic loss per share, or EPS, is computed by dividing the loss attributable to common shareholders by the weighted average number of common shares outstanding. Diluted EPS reflects the potential dilution that could occur from common shares issuable through the exercise or conversion of stock options, restricted stock awards, warrants, and convertible securities. In certain circumstances, the conversion of options, warrants, and convertible securities are excluded from diluted EPS if the effect of such inclusion would be anti-dilutive.

 

The dilutive effect of stock options is determined using the treasury stock method. Stock options and warrants to purchase our common shares issued during the period were not included in the computation of diluted EPS, as the effect would be anti-dilutive.

 

Comprehensive Loss

 

We follow ASC topic 220. This statement establishes standards for reporting and display of comprehensive (loss) income and its components. Comprehensive loss is net loss plus certain items that are recorded directly to shareholders' equity. We currently have no other comprehensive loss items. 

 

Results of Operations

 

Three and six months ended June 30, 2020 compared to three and six months ended June 30, 2019

 

Our results of operations for the three and six months ended June 30, 2020 and June 30, 2020 are as follows:

 

    Three months ended June 30,   Six months ended June 30,
      2020       2019     Change     2020       2019     Change
       $         $         $         %         $         $         $         %   
Expenses                                                                
Research and development     3,908,171       1,061,507       2,846,664       268 %     4,503,570       8,592,882       (4,089,312 )     -48 %
General and administrative     988,734       901,319       87,415       10 %     2,272,261       4,113,677       (1,841,416 )     -45 %
Professional fees     282,791       231,647       51,144       22 %     573,472       989,946       (416,474 )     -42 %
Amortization - right-of-use asset           127,345       (127,345 )     N/A       42,448       254,690       (212,242 )     N/A  
Amortization - intangible     44,990       270       44,720       16563 %     90,025       537       89,488       16664 %
Depreciation     77,859       68,925       8,934       13 %     154,275       130,979       23,296       18 %
Loss from operations     5,302,545       2,391,013       2,911,532       122 %     7,636,051       14,082,711       (6,446,660 )     -46 %
Interest income     (247 )           (247 )     NA       (328 )           (328 )     NA  
Interest expense           12,164       (12,164 )     -100 %     732       18,338       (17,606 )     -96 %
Loss on property and equipment           1,308       (1,308 )     -100 %     69,834       1,308       68,526       N/A  
Loss on right-of-use asset                       N/A       59,097             59,097       N/A  
Gain on settlement of liabilities                       N/A             (19,737 )     19,737       N/A  
Other income                       N/A       (5,500 )           (5,500 )     N/A  
Foreign exchange gain     5,692       (58 )     5,750       -9914 %     (1,279 )     (1,283 )     4       0 %
Loss before income taxes     5,307,990       2,404,427       2,903,563       121 %     7,758,607       14,081,337       (6,322,730 )     -45 %
                                                                 
Income tax expense                       N/A                         N/A  
                                                                 
Net loss and comprehensive loss     5,307,990       2,404,427       2,903,563       121 %     7,758,607       14,081,337       (6,322,730 )     -45 %

 

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Revenue

 

We did not generate any revenue during the three and six months ended June 30, 2020 and June 30, 2019.

 

Research and Development

 

Research and development expense for the three months ended June 30, 2020 was $3,908,171 compared to $1,061,507 for the three months ended June 30, 2019, an increase of $ 2,846,664 or 268%. The increase primarily resulted from a milestone expense of $3,000,000 recognized in accordance with our development and supply agreement with Qorvo Biotechnologies, LLC. (“Qorvo”) and increased regulatory fees. This increase partially was offset by a reduction in salaries and bonuses of $129,234 and supplies of $39,730.

 

Research and development expense for the six months ended June 30, 2020 was $4,503,570 compared to $8,592,882 for the six months ended June 30, 2019, a reduction of $4,089,312 or 48%. The decrease primarily was due to a reduction of $2,000,000 in milestone expenses relating to TRUFORMA™ under our development and supply agreement with Qorvo, a reduction of $736,841 in milestone expenses relating to our development of ZM-017 under our license and supply agreement with Celsee, Inc., a reduction of $933,754 in consulting expenses, a reduction of $188,157 in salaries, bonus and benefits, and a reduction of $73,882 in supplies.

 

General and Administrative

 

General and administrative expense for the three months ended June 30, 2020 was $988,734, compared to $901,319 for the three months ended June 30, 2019, an increase of $87,415 or 10%. The increase primarily was due to an increase in salaries, bonuses and benefits of $52,202, inclusive of $135,844 in cost associated with options granted to employees in the period. After adjusting for the stock option compensation expense, salaries decreased by $53,075. This decrease was due to no bonuses being earned in the current period versus the prior period, offset by increases in salaries. Other increases include rent expense of $75,672 relating to the reclassification of right-of-use asset amortization, $26,999 in insurance expense, and $14,192 in office expense. These increases were offset by reductions in travel and accommodation expense of $62,080, marketing and investor relations expense of $11,078, office supplies of $4,314 and $4,178 for regulatory fees.

 

General and administrative expense for the six months ended June 30, 2020 was $2,272,261, compared to $4,113,677 for the six months ended June 30, 2019, a decrease of $1,841,416 or 45%. The decrease primarily was due to a reduction in salaries, bonuses and benefits of $2,142,824 as a result of a reduction in stock option compensation expense compared to the prior period. After adjusting for the stock option compensation expense, salaries decreased $45,105. This decrease was due to no bonuses being earned in the current period versus the prior period, offset in part by an increase in salary expense. This decrease was partially offset by an increase in office expense associated with the expensing of furniture in the office space completed in the first quarter.

 

Professional Fees

 

Professional fees for the three months ended June 30, 2020 were $282,791 compared to $231,647 for the three months ended June 30, 2019, an increase of $51,144 or 22%. The increase was due to additional legal fees associated with the COVID-19 pandemic disclosures, our offering activity and the appointment of our new Interim Chief Executive Officer.

 

Professional fees for the six months ended June 30, 2020 were $573,472 compared to $989,946 for the six months ended June 30, 2019, a decrease of $416,474 or 42%. The decrease was primarily due to expenses incurred in the prior period related to the preparation of our S-3 resale registration statement and our S-8 registration statement.

 

Net Loss

 

Our net loss for the three months ended June 30, 2020 was $5,307,990 or $0.02 per share, compared with a net loss of $2,404,427 or $0.02 per share, for the three months ended June 30, 2019, an increase of $2,903,563 or 121%. The net loss in each period was attributed to the matters described above.

 

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Our net loss for the six months ended June 30, 2020 was $7,758,607 or $0.05 per share, compared with a net loss of $14,081,337 or $0.13 per share for the six months ended June 30, 2019, a decrease of $6,322,730 or 45%. The net loss in each period was attributed to the matters described above. We expect to continue to record net losses in future periods until such time, if ever, as we have sufficient revenue from our product candidates to offset our operating expenses.

 

Cash Flows

 

Three and six months ended June 30, 2020 compared to three and six months ended June 30, 2019

 

The following table shows a summary of our cash flows for the periods set forth below:

 

    Three months ended June 30,   Six months ended June 30,
      2020       2019     Change     2020       2019     Change
      $       $       $       %       $       $       $       %  
Cash flows used in operating activities     (5,720,528 )     (8,436,011 )     2,715,483       -32 %     (7,893,653 )     (11,017,287 )     3,123,634       -28 %
Cash flows from financing activities     33,326,825       11,966,905       21,359,920       178 %     35,478,603       14,973,733       20,504,870       137 %
Cash flows from (used) in investing activities     -       (5,477 )     5,477       -100 %     1,007,513       (74,563 )     1,082,076       -1451 %
Increase in cash     27,606,297       3,525,417       24,080,880       683 %     28,592,463       3,881,883       24,710,580       637 %
Cash and cash equivalents, beginning of period     1,496,752       2,296,731       (799,979 )     -35 %     510,586       1,940,265       (1,429,679 )     -74 %
Cash and cash equivalents, end of period     29,103,049       5,822,148       23,280,901       400 %     29,103,049       5,822,148       23,280,901       400 %

 

Operating Activities

 

Net cash used in operating activities for the three months ended June 30, 2020 was $5,720,528, compared to $8,436,011 for the three months ended June 30, 2019, a decrease of $2,715,483 or 32%. The decrease resulted primarily from a lower net loss in the second quarter of 2020 compared to the second quarter of 2019, offset in part by a reduction of current liabilities.

 

Net cash used in operating activities for the six months ended June 30, 2020 was $7,893,653, compared to $11,017,287 for the six months ended June 30, 2019, a decrease of $3,123,634 or 28%. The decrease resulted primarily from a lower net loss in the first half of 2020 compared to the first half of 2019, offset in part by a reduction in current liabilities and an increase in current assets.

 

Financing Activities 

 

Net cash from financing activities for the three months ended June 30, 2020 was $33,326,825, compared to $11,966,905 for the three months ended June 30, 2019, an increase of $21,359,920 or 178%. The increase resulted primarily from the sale of our equity securities for total gross proceeds of approximately $23,998,783 as well as $9,826,359 cash received from warrant exercises, $1,465,500 cash received from pending warrant exercises, and cash received of $527,360 from the SBA’s Paycheck Protection Program, offset in part by increased stock issuance costs of $2,491,177.

 

Net cash from financing activities for the six months ended June 30, 2020 was $35,478,603, compared to $14,973,733 for the six months ended June 30, 2019 an increase of $20,504,870 or 137%. The increase resulted primarily from the sale of our equity securities for total gross proceeds of approximately $26,498,783, cash received of $9,826,359 from warrant exercises, $1,465,500 cash received from pending warrant exercises and cash received of $527,360 from the SBA’s Paycheck Protection Program offset in part by stock issuance costs of $2,839,399.

 

Investing Activities

 

Net cash used in investing activities for the three months ended June 30, 2020 was nil, compared to $5,477 for the three months ended June 30, 2019, a decrease of $5,477 or 100%.

 

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Net cash from investing activities for the six months ended June 30, 2020 was $1,007,513, compared to net cash used of 74,563 for the six months ended June 30, 2019, an increase of $1,082,076 or 1,451%. The increase in net cash from investing activities related to the cancellation and buyout of our office lease.

 

Liquidity and Capital Resources

 

We have incurred losses and negative cash flows from operations and have not generated any revenue since our inception in May 2015. As of June 30, 2020, we had an accumulated deficit of $59,816,448. We have funded our working capital requirements primarily through the sale of our securities and the exercise of stock options and warrants.

 

As of June 30, 2020, the Company had cash of $29,103,049, prepaid expenses and deposits of $782,647, and accounts receivable of $182,496. Current assets amounted to $30,068,192, with current liabilities of $1,963,965, resulting in working capital (defined as current assets minus current liabilities) of $28,104,227.

 

As of June 30, 2020, we had shareholders’ equity of $29,578,961.

 

In July 2020, we sold an aggregate of (i) 162,500,000 common shares, (ii) pre-funded warrants to purchase up to 25,000,000 common shares and (iii) Series D warrants to purchase an aggregate of 187,500,000 common shares for aggregate gross proceeds of $30,000,000. The pre-funded warrants sold in the July offering have been exercised in full.

 

Since June 30, 2020, we have received an aggregate of $863,550 from the exercise of outstanding warrants.

 

As of August 10, 2020, we had cash and cash equivalents of approximately $55,000,000.

 

On October 17, 2017 we entered into a five-year $5,000,000 unsecured working capital facility with Equidebt LLC, one of our shareholders (the “Equidebt Facility”). Amounts borrowed under the Equidebt Facility bear interest at a rate of 14% per annum payable at maturity. All amounts borrowed under the Equidebt Facility become due and payable on October 17, 2022. We can make two borrowings per month under the Equidebt Facility, each of which must be for a minimum of $250,000. The Equidebt Facility is unsecured. As of June 30, 2020, no amounts have been borrowed against this facility.

 

We believe that our existing cash resources will be sufficient to fund our expected working capital needs through December 2021. If we raise additional funds by issuing equity securities, our existing security holders will likely experience dilution, and the incurring of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that could restrict operations. In the event that we are unable to obtain sufficient capital to meet our working capital requirements, we may be required to change or curtail current or planned operations in order to conserve cash until such time, if ever, that sufficient proceeds from operations are generated. In such an event, we may not be able to take advantage of business opportunities and may have to terminate or delay safety and efficacy studies, curtail our product development programs, or sell or assign rights to our product candidates, products and technologies.

 

Our future capital requirements depend on many factors, including, but not limited to:

 

the scope, progress, results and costs of researching and developing our current or future product candidates;

 

the timing of, and the costs involved in, obtaining regulatory approvals for any of our current or future product candidates;

 

the number and characteristics of the product candidates we pursue;

 

the cost of manufacturing our current and future product candidates and any products we successfully commercialize;

 

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the cost of commercialization activities if any of our current or future product candidates are approved for sale, including marketing, sales, service, customer support and distribution costs;

 

the expenses needed to attract and retain skilled personnel;

 

the costs associated with being a public company;

 

our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such agreements; and,

 

the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing possible patent claims, including litigation costs and the outcome of any such litigation.

 

Off Balance Sheet Arrangements

 

Since inception, we have not engaged in the use of any off-balance sheet arrangements, such as structured finance entities, special purpose entities, or variable interest entities. 

 

Outstanding Share Data

 

The only class of outstanding voting or equity securities of the Company are the common shares. As of August 10, 2020:

 

· there are 564,051,438 common shares issued and outstanding;

 

· there are stock options outstanding under our Stock Option Plan to acquire an aggregate of 13,472,515 common shares; and

 

· there are common share purchase warrants (collectively, the “February Warrants”) outstanding to acquire an aggregate of 21,875,001 common shares, which February Warrants were issued in connection with an offering completed by the Company on February 14, 2020 (which has been described in a Form 8-K dated February 12, 2020). Of these February Warrants, 20,833,334 are Series A Warrants exercisable for a cash price of $0.20 per share, and 1,041,667 are Series A Placement Agent Warrants exercisable for a cash price of $0.15 per share.

 

· there were common share purchase warrants (collectively, the “April Warrants”) outstanding to acquire an aggregate of 18,333,334 common shares, which April Warrants were issued in connection with an offering completed by the Company on April 9, 2020 (which has been described in a Form 8-K dated April 7, 2020). Of these April Warrants, 16,666,667 are Series B Warrants, 1,666,667 are Series B Placement Agent Warrants, and all are exercisable for a cash price of $0.15 per share. There are currently 6,731,250 April Warrants outstanding to acquire an aggregate of 6,731,250 common shares.

 

· there were common share purchase warrants (collectively, the “May Warrants”) outstanding to acquire an aggregate of 145,503,333 common shares, which May Warrants were issued in connection with an offering completed by the Company on May 29, 2020 (which has been described in a registration statement on Form S-1 (File No. 333-238322) filed on May 26, 2020). Of these May Warrants, 133,333,333 are Series C Warrants, all exercisable for a cash price of $0.15 per share, and 12,170,000 are Pre-funded Warrants, all of which have now been exercised. There are currently 63,899,362 Series C Warrants outstanding to acquire an aggregate of 63,899,362 common shares.

 

· the there were common share purchase warrants (collectively, the “July Warrants”) outstanding to acquire an aggregate of 212,500,000 common shares, which July Warrants were issued in connection with an offering completed by the Company on July 7, 2020 (which has been described in a Form 8-K dated July 6, 2020). Of these July Warrants, 187,500,000 are Series D Warrants, all exercisable for a cash price of $0.16 per share, and 25,000,000 are Pre-funded Warrants, all of which have now been exercised. There are currently 187,500,000 Series D Warrants outstanding to acquire an aggregate of 187,500,000 common shares.

 

· All of the currently outstanding warrants also have a “cashless exercise” feature which is applicable in certain circumstances. The cashless exercise feature could result in the potential issuance of common shares based upon the “in-the-money” value of the applicable warrants at the time of exercise of the applicable warrants. The number of the common shares that may be issued is not determinable. However, the number of common shares that are issuable is based upon a formula contained in the applicable warrants, which determines the number of common shares issuable by dividing the “in-the-money” value (based upon the then current market price, as provided in the applicable warrants) by the then current market price, and multiplying this result by the number of common shares that are issuable under the applicable warrants pursuant to cash exercise.

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Not applicable.

 

Item 4. Controls and Procedures.

 

Disclosure Controls and Procedures

 

Evaluation of Our Disclosure Controls

 

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that material information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, our chief executive officer and our chief financial officer, to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13(a)-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of June 30, 2020, our disclosure controls and procedures were effective.  

 

Management’s Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in the framework in “Internal Control — Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of June 30, 2020.

 

PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

On November 1, 2019, Heska Corporation (“Heska”) filed a complaint for damages and injunctive relief (the “Complaint”) in the United States District Court for the Middle District of North Carolina, Case 1:19-cv-01108-LCB-JLW, against Qorvo US, Inc. (“Qorvo US”), Qorvo Biotechnologies, LLC (“Qorvo Biotech” and, together with Qorvo US, “Qorvo”) and the Company (collectively with Qorvo, the “Defendants”). The Complaint alleges, among other things, that the Defendants improperly obtained Heska’s trade secrets and confidential information and/or conspired to use improper means to misappropriate Heska’s trade secrets related to an instrument and related consumable products for performing immunoassay analysis of biomarkers and other substances. The Complaint seeks compensatory and exemplary damages, as well as preliminary and permanent injunctive relief to prevent the Defendants from commercializing the Company’s TRUFORMATM diagnostic instrument. On January 21, 2020, the Defendants filed a motion seeking dismissal of the Complaint. On February 11, 2020, Heska filed its response to the Defendants’ motion to dismiss to which the Defendants responded on February 25, 2020. The Court has not yet ruled on Defendants’ motion to dismiss, and the litigation remains stayed pending a ruling on that motion. The Company believes that the allegations in the Complaint have no merit and will not have a material adverse effect on the Company’s business, results of operations or financial condition. Under the terms of the Development and Supply Agreement, dated November 26, 2018, by and between Qorvo Biotech and the Company (the “Qorvo Agreement”), Qorvo Biotech agreed to indemnify the Company and certain related parties against claims alleging infringement or misappropriation of third-party intellectual property rights, subject to certain limitations and exceptions. Qorvo Biotech has notified the Company that Qorvo Biotech has assumed the defense of the Complaint and will indemnify the Company for losses arising from the Complaint in accordance with the terms of the Qorvo Agreement. Qorvo Biotech has further advised the Company that it intends to mount a vigorous defense to the claims in the Complaint, and that it believes the allegations contained in the Complaint are without merit.

 

 

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Item 1A. Risk Factors.

 

RISK FACTORS

 

Risks Related to Our Business

 

We have a limited operating history, are not profitable and may never become profitable.

 

We have not generated any revenue to date, and we expect to continue to incur significant research and development costs and other expenses. Our net loss and comprehensive loss for (i) the three months ended June 30, 2020 and June 30, 2019 was $5,307,990 and $2,404,427, respectively, (ii) for the six months ended June 30, 2020 and June 30, 2019 was $7,758,607 and $14,081,337, respectively, and (iii) for the years ended December 31, 2019 and December 31, 2018 was $19,784,054 and $16,647,687, respectively. Our accumulated deficit as of June 30, 2020 was $59,816,448. As of June 30, 2020, we had total shareholders' equity of $29,578,961. We expect to continue to incur losses for the foreseeable future, as we continue our product development and commercialization activities. Even if we succeed in developing and broadly commercializing one or more of our product candidates, we expect to continue to incur losses for the foreseeable future, and we may never become profitable. If we fail to achieve or maintain profitability, then we may be unable to continue our operations at planned levels and be forced to reduce or cease operations. 

 

The “Novel Coronavirus Disease 2019” (“COVID-19”) pandemic has materially and adversely affected the development and commercialization of our TRUFORMA™ platform.

 

The COVID-19 pandemic materially and adversely affected the development and commercialization of our TRUFORMA™ platform and the initial five assays. In response to the pandemic, our development partner had reduced the number of employees working in its facilities for a period of time which has delayed the completion of the verification of the five initial TRUFORMA™ assays and the manufacturing of commercial quantities of the TRUFORMA™ platform and the related assays. Veterinary hospitals and clinics that had agreed to participate in the validation of our initial TRUFORMA™ assays either shut down for a period of time or limited their operations to those involving only life-threatening conditions, which we have mitigated to a certain extent with our recent ability to successfully complete remote installations. Potential customers have at times restricted access to their facilities which has affected and may continue to affect our ability to perform on-site demonstrations and other marketing activities. The extent to which the COVID-19 pandemic may impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak, the spread and severity of COVID-19, and the effectiveness of governmental actions in response to the pandemic.

 

The COVID-19 outbreak has disrupted our development partners and the COVID-19 pandemic and any future outbreak of a health epidemic or other adverse public health developments could materially and adversely affect our business and operating results.

 

The COVID-19 outbreak disrupted our development partners and the COVID-19 pandemic and any future outbreak of a health epidemic or other adverse public health developments could materially and adversely affect our business and operating results. For example, our development partner for our TRUFORMA™ platform and the related assays had reduced the number of employees working in its facility which significantly impacted our expected timing for the completion of the development and the commencement of the commercialization of our TRUFORMA™ platform and the related assays. If our suppliers are unable or fail to fulfill their obligations to us for any reason, we may not be able to manufacture our products and satisfy customer demand or our obligations under sales agreements in a timely manner, and our business could be harmed as a result. As noted above, there is continuing uncertainty relating to the potential effect of COVID-19 on our business. Infections may become more widespread and should that cause supply disruptions it would have a negative impact on our business, financial condition and operating results. In addition, a significant health epidemic could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect the market for our products, which could have a material adverse effect on our business, operating results and financial condition.

 

 

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The COVID-19 pandemic and any future outbreak of a health epidemic or other adverse public health developments could materially and adversely affect the sales of our products.

 

The COVID-19 pandemic resulted in a significant spike in unemployment and a concomitant decline in economic activity in the U.S. and many other countries. A worsening of the COVID-19 pandemic, any future outbreak of a health epidemic or other adverse public health developments may have similar effects. Pet owners may be unwilling or unable to seek treatment for their pets in such circumstances, thereby decreasing demand for our products. In addition, as noted above, potential customers for our products have either shut down or limited their operations which has affected and may continue to affect our ability to perform on-site demonstrations and other marketing activities. Potential customers also may be unwilling or unable to invest in new equipment or to introduce new treatments for their patients. As a result, the COVID-19 pandemic and any future outbreak of a health epidemic or other adverse public health developments could materially and adversely affect the sales of our products.

 

We are subject to the continued listing requirements of the NYSE American. If we are unable to comply with such requirements, our common shares would be delisted from the NYSE American, which would limit investors’ ability to effect transactions in our common shares and subject us to additional trading restrictions.

 

Our common shares are currently listed on the NYSE American. In order to maintain our listing, we must maintain certain share prices, financial and share distribution targets, including maintaining a minimum amount of shareholders’ equity and a minimum number of public shareholders. In addition to these objective standards, the NYSE American may delist the securities of any issuer if, in its opinion, the issuer’s financial condition and/or operating results appear unsatisfactory; if it appears that the extent of public distribution or the aggregate market value of the security has become so reduced as to make continued listing on the NYSE American inadvisable; if the issuer sells or disposes of principal operating assets or ceases to be an operating company; if an issuer fails to comply with the NYSE American’s listing requirements; if an issuer’s common stock sells at what the NYSE American considers a “low selling price” (generally trading below $0.20 per share for an extended period of time); or if any other event occurs or any condition exists which makes continued listing on the NYSE American, in its opinion, inadvisable. On April 10, 2020, we received a deficiency letter from the NYSE American indicating that the we are not compliance with Section 1003(f)(v) of the NYSE American Company Guide, because our common shares have been selling for a low price per share for a substantial period time. We intend to seek shareholder approval for a share consolidation of our common shares in order to regain compliance with the NYSE continued listing standards. If we fail to regain compliance with the NYSE American continued listing standards by October 10, 2020, the NYSE American will commence delisting proceedings.

 

If the NYSE American delists our common shares from trading on its exchange and we are not able to list our securities on another national securities exchange, we expect our common shares would qualify to be quoted on an over-the-counter market. If this were to occur, we could face significant material adverse consequences, including:

 

· a limited availability of market quotations for our securities;

 

· reduced liquidity for our securities;

 

· a determination that our common shares are a “penny stock” which will require brokers trading in our common shares to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;

 

· a limited amount of news and analyst coverage; and

 

· a decreased ability to issue additional securities or obtain additional financing in the future.

 

 

Item 6. Exhibits.

 

The exhibits listed on the accompanying index to exhibits immediately preceding the exhibits are filed as part of, or hereby incorporated by reference into, this Quarterly Report.

 

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EXHIBIT INDEX

 

Exhibit

No.

  Description
     
3.1   Articles of Amalgamation of Zomedica Pharmaceuticals Corp. (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1 filed with the Commission on November 20, 2017 (File No. 333-217409))
     
3.2   Certificate of Amendment and Registration of Restated Articles of Zomedica Pharmaceuticals Corp. (incorporated by reference to Exhibit 3.3 to the Company's Registration Statement on Form S-1 filed with the Commission on November 20, 2017 (File No. 333-217409))
     
3.3   Certificate of Amalgamation of Zomedica Pharmaceuticals Corp. (incorporated by reference to Exhibit 3.4 to the Company's Registration Statement on Form S-1 filed with the Commission on November 20, 2017 (File No. 333-217409))
     
3.4   Articles of Amendment to the Articles of Incorporation of Zomedica Pharmaceuticals Corp. (incorporated by reference to Exhibit 3.5 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 10, 2019 (File No. 001-38298))
     
3.5   Amended and Restated By-Law No. 1 (2nd Version) of Zomedica Pharmaceuticals Corp. (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed with the Commission on August 7, 2020 (File No. 001-38298))
     
31.1   Certification of Interim Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
31.2   Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1*   Certification of Interim Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
     
101.INS   XBRL Instance Document.*
     
101.SCH   XBRL Taxonomy Extension Schema Document.*
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document.*
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document.*
     
101.LAB   XBRL Taxonomy Extension Label Linkbase Document.*
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document.*

 

* This certification is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the registrant specifically incorporates it by reference.

 

 

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

  Zomedica Pharmaceuticals Corp.  
       
  By: /s/ Robert Cohen  
  Name: Robert Cohen  
  Title: Interim Chief Executive Officer  
       
  By: /s/ Shameze Rampertab  
  Name: Shameze Rampertab  
  Title: Chief Financial Officer  

 

 

 

 

 

 

 

 

 

 

 

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